What Happened?
Shares of cloud security platform Zscaler (NASDAQ: ZS) fell 11.1% in the afternoon session after the company's third-quarter results showed a miss on billings, a key metric for future growth, which overshadowed an impressive "beat and raise" quarter.
The cloud security company reported revenue of $788.1 million, up 25.5% year over year, and an adjusted profit of $0.96 per share, both surpassing analysts' expectations. Zscaler also raised its full-year guidance for revenue and earnings. However, investors focused on the company’s billings, which came in at $597 million. This figure, which is an indicator of future revenue, missed expectations and sparked concerns about a potential slowdown in growth. The market's negative reaction suggested that for a highly-valued company like Zscaler, simply beating estimates isn't enough; all growth metrics need to be strong.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy Zscaler? Access our full analysis report here.
What Is The Market Telling Us
Zscaler’s shares are somewhat volatile and have had 11 moves greater than 5% over the last year. But moves this big are rare even for Zscaler and indicate this news significantly impacted the market’s perception of the business.
The previous big move we wrote about was 6 days ago when the stock dropped 3.9% on the news that markets faded the Nvidia rally in the morning session, as investors remained uncertain about future rate cuts.
While the trading day began with significant enthusiasm, pushing the Dow Jones Industrial Average up more than 700 points and the Nasdaq Composite up 2.6%, momentum quickly evaporated as the session wore on. The primary catalyst for this sharp reversal was a stronger-than-expected jobs report, which reduced the implied odds of a December interest rate cut to less than 40%. This macroeconomic anxiety overshadowed stellar corporate performance. Nvidia initially surged 5% on blockbuster earnings and CEO Jensen Huang's bullish outlook on "off the charts" demand for Blackwell chips. However, the stock eventually turned negative, acting as a heavy weight that dragged the broader indices into the red. The sell-off partly reflects a deepening caution regarding high-flying tech valuations in a "higher-for-longer" rate environment.
Consequently, investors appeared to rotate capital away from volatile growth sectors and toward defensive staples, evidenced by Walmart's 6% gain following its own earnings beat. Ultimately, the market could not sustain the morning's euphoria, as traders prioritized rate realities over AI potential.
Zscaler is up 42.2% since the beginning of the year, but at $258.40 per share, it is still trading 23.2% below its 52-week high of $336.27 from November 2025. Investors who bought $1,000 worth of Zscaler’s shares 5 years ago would now be looking at an investment worth $1,726.
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